US Service Expansion Slows, Price Gauge at Four-Year High

The US service sector expanded at a slower pace in September as cost pressures grew by the most in more than four years.

The Institute for Supply Management’s services index fell 0.5 point to 54.9 last month, according to data released Monday. Readings above 50 indicate expansion.

While resilient consumer spending, a stable job market and strong business investment continue to support demand for services, firms must also contend with mounting costs.

ISM’s measure of prices paid for materials and services rose to 74, the highest since July 2022. The measure had hit a nearly one-year low in February, just before the Iran war sent fuel costs higher.

Supply chains have also been affected by tariffs and the Middle East conflict. A gauge of supplier delivery times was the highest since June.

“Tariffs and fuel cost impacts were the most cited issues impacting respondents’ supply chains; in fact, fuel costs were mentioned twice as often as any other single issue impacting performance,” Steve Miller, chair of ISM’s Services Business Survey Committee, said in a statement. “Supply chain constraints were also a top concern of respondents and were impacting both lead times and costs.”

New orders, a measure of demand, slipped 1.1 point to 59.8. While down from August, the latest reading is still one of the highest of the past few years. ISM’s gauge of order backlogs was the highest since July 2022.

Service sector businesses have been cautious on hiring as they balance solid demand and rising costs. ISM’s employment gauge ticked into positive territory, to 50.1, for the first time since June.

Thirteen services industries reported growth in September, including wholesale trade, real estate and accommodation and food services. Four reported contraction.